Knill succeeded Martin Ling at Plainmoor last year, initially on temporary basis before getting the job permanently in May.
However, Torquay have won only five of their 24 league games this season and are second bottom, prompting the Devon club to party company with the 49-year-old former Bury, Scunthorpe United and Rotherham United boss.
A club statement read: "The first half of this season has not gone as we all hoped and the board at Plainmoor believe now is the right time for a change.
"The search for a new manager begins immediately but, in the meantime, our head of youth Geoff Harrop will take the team for Saturday's game with Morecambe at Plainmoor."
Torquay, who avoided relegation by two points last season, endured a mixed festive period that included back-to-back defeats against local rivals Exeter City and Plymouth Argyle.
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